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Business Financial News: Yahoo! buyout — let the bidding war begin!

Posted February 14, 2008

“Not only does it not make sense for Yahoo! and its corporate strategy, but its shareholders will never go for it. You see, institutional shareholders comprise nearly 75% of Yahoo!’s roster. ” – Andrew Snyder

By Andrew Snyder

Baltimore (TFN) — It is no wonder Rupert Murdoch is one of my fondest heroes. The guy flat out knows how to stir controversy and get his businesses in the headlines. His latest gesture, a possible deal with Yahoo!, is a bold move, but it may be one of desperation.

If you recall, Murdoch and his News Corp. (NWS:NYSE) purchased Internet-sensation Myspace for $580 million. The media mogul believed he could turn the site into an advertising powerhouse. So far, his dream is far from fruition. That is why Murdoch wants to cut a deal with Yahoo! (YHOO:NASDAQ).

But News Corp. does not want to buy Yahoo! outright, it merely wants a 20% stake. That way it only takes on a fifth of the risk, but still gets the ability to combine Murdoch’s media conglomeration with Yahoo!’s web offerings. It’s a deal that will never happen.

Not gonna do it

Not only does it not make sense for Yahoo! and its corporate strategy, but its shareholders will never go for it. You see, institutional shareholders comprise nearly 75% of Yahoo!’s roster. They don’t care about Murdoch and his marauding ways. They see a chance to get out of their Yahoo! holding with a 50% premium. They have been looking for the right time to ditch this laggard for years.

Groups like Legg Mason (with a 6% stake in Yahoo!) and Capital Research and Management (with an 11% stake) are holding backroom meetings and working overtime to finalize a deal between Microsoft and Yahoo!. Of course, their math (often different than yours or mine) shows Microsoft’s deal is grossly undervalued. Bill Miller, Legg Mason’s big cheese, believes a better offer would be in the $40 range.

With all this ad-space maneuvering taking place, you can’t expect Google (GOOG:NASDAQ) to sit back and watch its industry unfold around it. Rumor has it, the industry leader is doing its best to work out its own advertising deal with Yahoo!. There is not much need to pay attention to these rumors, though. Google and Yahoo! would never legally be allowed to combine, and Google has absolutely no need for Yahoo!’s paltry offerings in the first place.

Let Microsoft waste its money

In the end, Microsoft will likely end up with Yahoo!. It will pay a bit more than its original offering price, but the deal will go through. For the first few months, the Internet world will await a huge Internet transformation from the combined giant. It will never come. We are used to that.

Google has the lead. People know its offerings. And its business is established. When Microsoft buys Yahoo! it will mean nothing more than a confirmation that two once-powerful companies have reached maturity and are now doing all they can to continue growing. It is the business cycle at work.

If you own shares of Yahoo!, good for you. Continue to hold them until Bill Gates comes knocking at your door. Until then, let Murdoch and his gang keep raising prices.


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Posted by Andrew Snyder · Filed Under US Stocks and Markets 

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